Whats the difference between the “Finance Company” and the “Holder” found on my auto lease?
This is how car loans work (lease financing is similar but more complicated). The Finance Company is the one who originates the loan. They have no money of their own. They are funded by a credit line with a commercial bank. The Holder is the entity that ends up owning the debt instrument (the note). That would an investor with real money. In sequence: 1. You apply for and close a loan transaction with the finance company to pay for a car. 2. The money comes from the commercial bank which lends it to the finance company who pays the dealer for the car. 3. The finance company sells the promissory note to the investor (the holder) who pays the finance company who, in turn, pays back the commercial bank. The object of all this is the interest on the loan. Collecting the payments (interest plus a portion of the principle) each month is called the servicing. The servicing rights may or may not go to the holder with the note. In a car loan, you will usually make your payments to the finance c
In certain circumstances, these 2 parties could be one and the same – basically the finance company is the one who is supplying you with the loan so that you can pay for the car, and the holder is the own who owns the car in the meantime until you can finish paying up for it. In the case where the finance company is buying the car on your behalf and leasing it to you, they are the same. But if you’re say leasing a car from your employer, your employer becomes the holder while the financing company is a separate entity. Hope that’s clear!
